None of These Companies are Making Any Money!

One of the things I have come to realize since moving to Silicon Valley is that 95+% of tech companies aren’t making any money. That’s $0. Zip. Nada. Of the VC backed companies some are making money but nothing close to even $10MM/yr. Forget about the $100MM you need to go public.

Some observations:

1. Social is the hardest to monetize. Social widgets/apps can grab significant page views but the CPM (amount advertisers are willing to pay to reach those viewers) is unbelievably low.

2. Any company that plans to make money off of “advertising” (usually meaning display or text based CPM) isn’t making any.

3. Most people in the valley are like sheep. Everyone jumps on the latest trend and creates a [insert buzzword #1, buzzword #2] startup. Currently that’s social anything.

Industries that do make money:

1. Search.

Good luck against Google but if you get any sort of a hit here you’re golden. Still plenty of innovation to be done.

2. Shopping/E-commerce.

Especially CPC comparison shopping and other lead generation.

3. Advertising.

As in you either built a network or are targeting ads better.

4. Travel.

Similar affiliate based or CPC model to comparison shopping.

That’s about it! The only page view advertising companies that make it are ones that just have an ungodly amount of page views (YouTube, MySpace, Facebook). They are really hard to build and everyone is going after them. High failure rate.

Peter Thiel had it right... to win here you need to be contrarian and right.

Comments

[Boris M. Silver]

Fantastic post :-)

It's awesome that you've got the Wharton and east coast perspective. So you know about actual business and you quickly recognize when it's not there (i.e. what sounds like most of Silicon Valley). I think gambling/porn companies on the internet are making money too, and some of the guys doing enterprise solutions like 37Signals. But for the most part you nailed it -- people aren't going after big time markets with the mainstream of America and are instead going after cool tech or valley trends.

"1. Social is the hardest to monetize. Social widgets/apps can grab significant page views but the CPM (amount advertisers are willing to pay to reach those viewers) is unbelievably low."

For the most part, you're right, but there's room to make what VCs call "lifestyle" money. i.e. extra cash that's nice if you're not funded and not necessarily going to make you a billionaire, but enough that it's worth it. Still, it's like an 80-20 rule (more like 90-10 rule) with a majority of the money going to the biggest guys or most dominant niche players.

Go show 'em how it's done Jack!

Can't wait to hear big things,

Boris

[Jack Abraham]

Thanks for the comment Boris. That's very true, building a lifestyle business can be very worthwhile for a self-funded entrepreneur.

You're also right that porn makes money. It's just not something that investors fund b/c there is no exit (would Google, eBay or the public buy a porn company?)

I actually am realizing that I left online retailers off the list, although they aren't a pure web tech play. Diapers.com for instance, while it sounds boring, makes a ton of money. Additionally payment processing companies like PayPal make good money.